Is a 457 or 401k beneficial to me
New York, NY · Member since 2017 · 81 posts · 19 votes
I’m 26 and I’m all about personal finance and investing. I have a good amount of money that invest in stocks and I also max out my Roth ira every year. My job provides a pension and annuity for retirement so this would just be extra. Any benefit for me other then saving more for retirement ?
If your employer offers a match for the employer sponsored retirement plan - that is immediate benefit. You should contribute at least up to the match. For example: if them match 50 cents for every dollar that you contribute up to 5% of your salary, you should contribute 5% and get 50% immediate return on your money (not counting the investment returns).
If your employer offers a match for the employer sponsored retirement plan - that is immediate benefit. You should contribute at least up to the match. For example: if them match 50 cents for every dollar that you contribute up to 5% of your salary, you should contribute 5% and get 50% immediate return on your money (not counting the investment returns).
I’m 26 and I’m all about personal finance and investing. I have a good amount of money that invest in stocks and I also max out my Roth ira every year. My job provides a pension and annuity for retirement so this would just be extra. Any benefit for me other then saving more for retirement ?
Do you also have a health insurance plan with the job? If it's a HDHP that is HSA-qualified, you might look into seeing if that insurance could fit your needs. For most healthy folks, they buy way more health insurance than they need. An HSA plan lets you invest in the market with contributions that are fully tax-deductible. The premiums are usually lower cost. All earnings are tax-free for life (like a Roth). You can access the funds for any qualified medical bill (meds, doctor, dentist, optical, mental health). There are no RMDs. You can access the money for non-qualified spending after you retire and only pay ordinary income tax on it. And you can use the funds toward your medicare premiums -- assuming any of these programs exist in four decades.
I work for NYC so no match. Also yes I have healthcare provided
If you are capable and able to save extra money every month and not needing immediate access to the investments/ savings strategies. I would suggest looking into Cash Value whole life insurance policies or Indexed Universal Life policies and annuities. These have NO annual cap for what you can place inside of them unlike 401K's and IRA accounts making them an extremely good long term investment strategy.
Life insurance policies are front loaded for cost meaning that in the 1st 5-10 the policies pay out over 80% of the lifetime fees associated with the policies so in the 1st 5-10 years they don't look that great when looking from an investment standpoint. That being said when you look at year 20 they are on par with what an the statistical average mutual fund returns.
Would a 457 be tax deductible
Would a 457 be tax deductible
If you are capable and able to save extra money every month and not needing immediate access to the investments/ savings strategies. I would suggest looking into Cash Value whole life insurance policies or Indexed Universal Life policies and annuities. These have NO annual cap for what you can place inside of them unlike 401K's and IRA accounts making them an extremely good long term investment strategy.
Life insurance policies are front loaded for cost meaning that in the 1st 5-10 the policies pay out over 80% of the lifetime fees associated with the policies so in the 1st 5-10 years they don't look that great when looking from an investment standpoint. That being said when you look at year 20 they are on par with what an the statistical average mutual fund returns.
If you are capable and able to save extra money every month and not needing immediate access to the investments/ savings strategies. I would suggest looking into Cash Value whole life insurance policies or Indexed Universal Life policies and annuities. These have NO annual cap for what you can place inside of them unlike 401K's and IRA accounts making them an extremely good long term investment strategy.
Life insurance policies are front loaded for cost meaning that in the 1st 5-10 the policies pay out over 80% of the lifetime fees associated with the policies so in the 1st 5-10 years they don't look that great when looking from an investment standpoint. That being said when you look at year 20 they are on par with what an the statistical average mutual fund returns.
I can print out a few of different illustrations for CV Life Policies. Those will show guaranteed returns, the policies illustrate those returns based on either a 10 or 20 year lookback, depending on the illustration and carrier. However, it is a mistake on my part to say or suggest that a life insurance policy is the same as an investment. and I should not have done that I am working to stop doing that. Life insurance isn't an "either, or", it is a "in conjunction with" strategy. definitely keep investing and building your portfolio, but the smart play and I say it is smart because all the really smart people and hugely successful corporations all use CV whole life insurance, to grow, to build and to pass on wealth.
Life insurance is an investment in yourself, in your family, in your legacy, and they are designed as such. That is why you can get 500k in death benefit for less than $20/month in a term policy. Or why in a whole life policy (illustrated on myself) 35 years old putting $400/month for 30 years ($144K) is worth about $420K at the 30 year mark.
Cash Value Life insurance is a way to pass on substantial amount of money to our heirs while also allowing us access to that money while we are alive.
Life insurance is an investment in yourself, in your family, in your legacy, and they are designed as such. That is why you can get 500k in death benefit for less than $20/month in a term policy. Or why in a whole life policy (illustrated on myself) 35 years old putting $400/month for 30 years ($144K) is worth about $420K at the 30 year mark.
Cash Value Life insurance is a way to pass on substantial amount of money to our heirs while also allowing us access to that money while we are alive.
Good wording -- folks need to understand the value of insurance, gambling against themselves for their family's sake.
Beyond the match, I don't plan to invest in a 401K beyond $100k. You can only borrow half of your 401k up to $50k, so once you hit that ceiling, it's pretty useless. I'm only interested in borrowing against it for other investments.
@Nicole Heasley Beitenman There are some 401K accounts that allow you to borrow more than that. I don't know anything more than that about them but I have a few clients talk about them.
It may be worth doing some investigating and maybe moving your current 401k to somewhere that allows you more access?
@Nicole Heasley Beitenman There are some 401K accounts that allow you to borrow more than that. I don't know anything more than that about them but I have a few clients talk about them.
It may be worth doing some investigating and maybe moving your current 401k to somewhere that allows you more access?
REALLY!? That's awesome! Thanks so much, Aaron!!!
Beyond the match, I don't plan to invest in a 401K beyond $100k. You can only borrow half of your 401k up to $50k, so once you hit that ceiling, it's pretty useless. I'm only interested in borrowing against it for other investments.
Would a 457 be tax deductible
Beyond the match, I don't plan to invest in a 401K beyond $100k. You can only borrow half of your 401k up to $50k, so once you hit that ceiling, it's pretty useless. I'm only interested in borrowing against it for other investments.
The borrowing out of a 401k is very limited in time and amount ($50k or 50% of the value, whichever is lover). Not only you have to pay it back within 5 years, but also you can't deduct the interest. Investing in real estate through a solo 401k on the other hand is very powerful. But to be eligible to a solo 401k you need your own side self employed business and make enough money to contribute.
In the context of using it as a cash pool to borrow from, a cash value maximum overfunded permanent life insurance may be a better fit as you are not limited in the premium and you can borrow up to 90% of the cash value. Also, if using a third party lender, you can deduct the interest of the loan as investment expense. When borrowing from a 401k, the balance of your 401k is lowered by the loan amount so your money is not working any more (except for the interest you pay back to yourself)... When you borrow from a cash value life insurance, the cash value does not change. You are still earning dividend/interest on the full amount of the cash value, while you are using the same money in other investment at the same time. So your money works at two places at the same time. Pretty powerful concept.
@Nicole Heasley Beitenman There are some 401K accounts that allow you to borrow more than that. I don't know anything more than that about them but I have a few clients talk about them.
It may be worth doing some investigating and maybe moving your current 401k to somewhere that allows you more access?
@Nicole Heasley Beitenman There are some 401K accounts that allow you to borrow more than that. I don't know anything more than that about them but I have a few clients talk about them.
It may be worth doing some investigating and maybe moving your current 401k to somewhere that allows you more access?
Oh man I spoke way too soon and totally screwed that up... I mixed up 401K with brokerage accounts
@Chris Breezy
Hey Chris,
In addition to the benefits already outlined above, the 457 has no penalties for early withdrawal which is more flexible than the 401k. You would have to pay income tax since it is considered deferred compensation, but no 10% early withdrawal penalty.
There are also some tax deduction phase outs when your income hits a certain level. Contributions could be used to get your AGI under those thresholds and qualify for the deduction.
@Chris Breezy
Keeping maxing out your Roth. Smart move. I’ve tapped 92k from our Roths tax free to buy real estate. You never know if you might need to grab some of it to expand your real estate. I would put every penny left over into RE. That’s what I’ve been doing and the monthly passive income from RE is getting up there. I just keep reinvesting it and it’s been snow balling. Diversify between the stock market and RE and you’ll be set for life with an early retirement from all the RE cash flow. Good luck!
@Aaron Porter I know of no employer that lets you move a 401k to another custodian while employed with that employer.
Let me ask one question. Do you think taxes are going to be the same as they are now when you retire, more or less? My personal suggestion is to max out your Roth like you are. Contribute to your company 401K up to the match amount & not a penny more. You can diversify into other investment vehicles. Your goal should be focused on how to reduce your taxable liabilities. It doesn’t matter how much is in that golden nest egg when you retire if the tax rate goes up to 70% by the time you’re ready to start withdrawals.
@Aaron Porter I know of no employer that lets you move a 401k to another custodian while employed with that employer.
Beyond the match, I don't plan to invest in a 401K beyond $100k. You can only borrow half of your 401k up to $50k, so once you hit that ceiling, it's pretty useless. I'm only interested in borrowing against it for other investments.
The borrowing out of a 401k is very limited in time and amount ($50k or 50% of the value, whichever is lover). Not only you have to pay it back within 5 years, but also you can't deduct the interest. Investing in real estate through a solo 401k on the other hand is very powerful. But to be eligible to a solo 401k you need your own side self employed business and make enough money to contribute.
In the context of using it as a cash pool to borrow from, a cash value maximum overfunded permanent life insurance may be a better fit as you are not limited in the premium and you can borrow up to 90% of the cash value. Also, if using a third party lender, you can deduct the interest of the loan as investment expense. When borrowing from a 401k, the balance of your 401k is lowered by the loan amount so your money is not working any more (except for the interest you pay back to yourself)... When you borrow from a cash value life insurance, the cash value does not change. You are still earning dividend/interest on the full amount of the cash value, while you are using the same money in other investment at the same time. So your money works at two places at the same time. Pretty powerful concept.
I listened to a podcast about this before. Can't remember if it was BP or not, but it blew my mind. I appreciate you sharing the information!
@Chris Breezy
This is how I would prioritize my investment:
401k up to match -> HSA (if HDHP) -> IRA -> Max 457 (if you have it) -> Max 401k -> Max After-Tax 401k (if allowed) -> 529 (if desired) -> Brokerage Account
I’m 26 and I’m all about personal finance and investing. I have a good amount of money that invest in stocks and I also max out my Roth ira every year. My job provides a pension and annuity for retirement so this would just be extra. Any benefit for me other then saving more for retirement ?